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The rise and fall of encryption: understanding of market dynamics
The world of cryptocurrency has been in a wild race in recent years, with the prices that float wildly as never before. But what makes Crypto Tick? How do market makers influence price action and what’s behind the rekt phenomenon that has left many investors shaken?
Crypto’s Allure
The cryptocurrency has become increasingly mainstream in the last ten years, with the value of Bitcoin (BTC) which has exceeded $ 20 trillion dollars in only 2021. The decentralized nature of Crypto, which allows peer-to-peer transactions without intermediaries, has Created a sense of community and safety between users.
However, this same decentralization also led to market volatility, making it difficult for investors to predict prices with certainty. Since the value of the individual cryptocurrencies floats, also the capitalization of the overall market (market capitalization), which measures the total value of all the coins in circulation.
Mercato capitalization: the size of the size of the market
The market capitalization of a cryptocurrency is determined by the total value of all its coins and tokens, divided by a specified number. For example, Bitcoin market capitalization is $ 1 trilione, while Ethereum (ETH) is $ 500 billion.
When a new coin or token becomes popular, it can quickly obtain traction and push its market capitalization to unprecedented levels. This is because investors are willing to purchase at lower prices, increasing the value of the entire market.
However, this same phenomenon can also lead to market instability. As the more money floods in the cryptocurrency market, prices can increase too quickly, causing a price bubble that eventually explodes. This is known as a “market collapse” or “rekt”, in which investors who are left to hold values without value (such as those who have purchased at the height) suffer significant losses.
Market Maker: The Unseung Hero
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Market Maker is an entity that provides liquidity to the market by purchasing and selling a specific cryptocurrency at prevalent market prices. This guarantees that there are buyers and sellers available, even when no one else wants to participate.
Assuming this role, market makers help to stabilize prices, which can lead to an increase in the volume of negotiation and the overall market of the market. However, their profits involve risks: if the market moves against them, they could undergo significant losses as they are obliged to regain at a higher price than they initially sold.
The rekt phenomenon
Rekt refers to an individual who is left in possession of unnecessary goods after a market collapse or other financial recessions. This phenomenon is particularly worrying for investors who have purchased with their own money, leaving them vulnerable to significant losses.
So how did we get here? A combination of factors contributed to the rekt phenomenon:
* Super-Saturation : The rise of new cryptocurrencies and coins has led to an excess of liquidity, making it difficult for market producers to provide stable prices.
* Lack of regulation
: The lack of supervision and regulation in the cryptocurrency space has allowed unscrupulous individuals to engage in pump and dump patterns, artificially inflating prices and therefore selling at loss.
* Insufficient risk management : many investors cannot correctly diversify their wallets or manage the risk, leaving vulnerable to significant losses.
Conclusion
The world of cryptocurrency is intrinsically volatile, with market dynamics modeled by the offer and demand, regulatory uncertainty and market feeling. While the charm of Crypto’s decentralized nature and the potential of high returns has fascinated many investors, has also created a perfect storm that can lead to price bubbles and market arrests such as Rekt.
